The summer of 2007 wasn’t all bad. Compared to the soaker Central Canada has faced this year, the weather was idyllic. According to Environment Canada, it was “a summer to remember with record warmth and perfect weekends.” Niagara farmers couldn’t recall “better fruit flavour.”

Some of us can’t remember what the peaches tasted like. For those working in or writing about Canada’s financial sector, the summer of 2007 was the scariest they had ever known. Things would get much scarier, on a global scale, a year later.

But it was during the summer of 2007 that one of Canada’s leading institutions faced the crisis that first alerted us to the rot underlying our entire financial system. We’re still recovering from the shock.

When the non-bank asset-backed commercial paper (ABCP) market froze up that summer, no institution faced a greater existential threat than Caisse de dépôt et placement du Québec, the Quebec pension-fund manager that was then Canada’s largest institutional investor. The Caisse, we learned, had accumulated 40 per cent of the $32-billion in non-bank ABCP that had been issued by obscure investment “conduits” with names such as Aurora, Comet and Rocket.

This short-term paper had received the highest possible rating from Dominion Bond Rating Service, but yielded slightly more than safe but stodgy government of Canada Treasury bills. Individual Caisse portfolio managers gorged on the stuff, blissfully oblivious to the risky U.S. subprime mortgages and highly leveraged derivatives that underlay the ABCP they bought.

When ABCP markets froze up, and conduits were unable to issue new paper to repay existing ABCP holders, the Caisse was exposed to potential losses that far exceeded the nominal value of the $12.6-billion in paper it held. That’s because of the derivatives, such as credit default swaps, that were included among the ABCP’s underlying assets. Had the conduits been forced into liquidation to repay investors, the Caisse’s very survival might have been at stake.

It is no surprise then that many of the financial-industry professionals involved in resolving the ABCP crisis are celebrating the tenth anniversary this month of the so-called Montreal Accord. Under that hard-won restructuring, ABCP investors agreed to convert their short-term paper into longer-term investments. The last of those investments expired this year.

In a recent review of the Montreal Accord, former DBRS head Walter Schroeder, ex-J.P. Morgan vice-president Timothy Ryan and Goodmans lawyer Stephen Halperin estimate the overall losses experienced by ABCP investors at $2.6-billion, instead of the more than $200-billion in losses that investors potentially faced if ABCP issuers were forced into immediate liquidation in 2007.

They particularly single out then-Caisse-head Henri-Paul Rousseau for credit. Had it not been for the efforts of this “architect” of the Montreal Accord, they insist, the restructuring “might never have seen the day, which would have triggered a liquidation of assets and considerable losses.”

We’re all for giving credit where credit is due. But it should not be forgotten that Mr. Rousseau was responsible for getting the Caisse into this fix in the first place.

Not only was it a reckless move for the pension-fund manager to invest almost 9 per cent of its overall assets in short-term instruments with no long-term track record of dependable performance. With such a large proportion of its assets tied up in illiquid investments after the Montreal Accord, the Caisse was forced into a fire sale of other assets to free up cash to meet margin calls during the 2008 financial crisis.

The chain of events unleashed by its disastrous decision to hold so much ABCP caused the Caisse to experience much larger losses than its peers during the crisis. In 2008, it reported a minus-25-per-cent return compared with an average 18-per-cent loss among large Canadian pension funds over all.

In the end, the Caisse says it lost $1.9-billion on its ABCP holdings, a figure it says includes “all of our operations to reduce or manage the volatility of our position.” Hence, the Caisse adds, the figure is not directly comparable to the $2.6-billion in losses experienced by all ABCP holders.

Even so, the $1.9-billion loss wildly understates the true cost – financial, reputational, human – of the Caisse’s ill-fated move into ABCP more than a decade ago. It shook the institution to its core, exposed the weakness of its risk-management practices and ended the careers of more than a few individuals. It took nearly a decade, under the leadership of current Caisse chief Michael Sabia, for the institution to put that ABCP saga behind it and look confidently forward.

Minimizing the fallout from the ABCP debacle is only an invitation to repeat it.

The Globe and MailLast Updated: Friday, Aug. 11, 2017 9:54PM EDTNational Bank of Canada president and CEO Louis Vachon remembers the moment, 10 years ago this week, when it became clear to him that the problems facing his bank went an awful lot further than his bank. A simmering crisis in the financial sector was coming to a boil, and it was going global.

01:39Published: Friday, Aug. 11, 2017 6:25PM EDTNational Bank was one of the biggest players in Canada’s market for asset-backed commercial paper (ABCP) – a relatively new concoction made up of bundles of various kinds of debt, including risky U.S. subprime mortgages. It was designed a short-term investment, a place to park cash for supposedly safe return.

But by August, 2007, concern about the severely-stressed U.S. subprime market was fuelling a liquidity crunch. On Aug. 9, a major European bank, BNP Paribas, suspended three of its investment funds with holdings tied to U.S. subprime-backed securities, taking the situation from bad to worse. As investors everywhere scrambled for the exits, National Bank had ABCP notes coming due, but no one was willing to buy new paper to fund the repayment of the expiring notes.

National Bank called its foreign bankers who had helped fund its ABCP program, and who had pledged to extend emergency lines of liquidity in the event of a “market disruption.” Mr. Vachon and his colleagues at National Bank believed this certainly fit the bill.

The bankers refused.

“It was a signal that the problem was so global and so large that they were probably not even in a position to respect these [liquidity] lines,” Mr. Vachon said in an interview this week. “That was the moment when we felt we had a serious problem.”

The global financial crisis wasn’t one of those, “Where were you when the planes hit the Twin Towers?” events, a single dramatic day that instantly changed the world.

Most observers, including Mr. Vachon, didn’t see August, 2007, as a critical turning point in a full-blown crisis until more than a year later, when U.S. investment bank Lehman Brothers famously collapsed. Others would point to the bursting of the U.S. housing bubble in the fall of 2006 as the true start of the crisis, the snowball that turned into an avalanche: Slumping home prices, a failing U.S. subprime market, flight from derivative products built on mortgage assets, tightening credit, bankrupt hedge funds, the collapse of U.S. investment bank Bear Stearns, a stock market crash and a deep recession.

But in retrospect, we can see August, 2007, as the moment when it all began to tumble down. Economists have a name for such a tipping point: The “Minksy Moment,” named for the late American economist Hyman Minsky, who spent a career studying financial crises and was convinced that financial markets were prone to speculative excesses that inevitably collapsed in crisis – and the more extreme and longer a period of excess, the harder the markets would fall. Mr. Minsky passed away in 1996, but boy, did the crisis of 2007-08 make him look smart.

The BNP Paribas decision was followed quickly by the freezing of Canada’s $32-billion market for third-party ABCP a few days later. Central banks, including the Bank of Canada, quickly stepped in emergency liquidity into the financial system to keep the markets moving; but the mere fact that they had to do so underlines the significance of the events of those dog days of summer a decade ago. Whether we knew it or not, we were in the worst financial crisis since the Great Depression.

Over the course of the next two years, the crisis would fuel the deepest global recession in 70 years; only drastic intervention by central banks, and an injection of massive deficit spending by governments, staved off a second Great Depression.

While estimates vary wildly on the global cost of the crisis, it’s safe to say it was in the tens of trillions of dollars in lost GDP, asset values, savings and income. It took the stock market more than five years to recover from its losses. (The Canadian equity market is still a little bit below it 2008 high.) Even a decade later, the global economy continues to labour under the weight of the crisis’s lingering effects.

And while Canada was often held up as a bastion of financial stability and sound governance during the depths of the crisis, the seize-up of its ABCP market was among the earliest signs that the problems the began in the U.S. housing and mortgage industries had infected too much of the global financial market to be contained.

“The Canadian ABCP crisis was really the first major liquidity halt of the financial crisis,” said Caroline Cakebread, co-author of the 2016 book Back from the Brink: Lessons from the Canadian Asset-Backed Commercial Paper Crisis. “It was really the first big one.”

The first of a long string of calamities for the global economy, from which we may only now be emerging. Central banks have spent the past decade backstopping the marketplace with ultra-low interest rates and bond purchases to keep the financial system well-primed and stimulate growth. We have whole new layers of financial oversight in place that didn’t exist before the crisis – things like Basel III on the global level, Dodd-Frank in the United States, and stronger rules and oversight for ABCP here in Canada – designed to better insulate the system from a repeat of the crisis. In particular, banks have been required to greatly increase the capital on their balance sheets and the liquidity of their assets, and are subjected to regular stress tests to assess their capacity to weather financial-market shocks.

Canada’s big banks acted quickly to freeze the at-risk ABCP market and protect it from the threat of defaults while they worked out restructuring plan, but that meant investors were blocked from accessing their money for many months – including thousands of retail investors, who in many cases had parked substantial portions of their savings in ABCP for temporary safe keeping. (Eventually, retail investors got their money back. Institutional investors had their short-term paper exchanged for new long-term notes which only expired earlier this year – nearly a decade after the funds were frozen.

After a decade of finding our way through the post-crisis wilderness, what have we learned?

We’ve learned that too-clever-by-half financial product creations can’t make risk magically disappear. Until the crisis hit, the people who had devised mortgage-backed derivative products such as ABCPs firmly believed that by bundling up pieces of risky mortgages and reselling them, they were spreading the risk of mortgage defaults so thin that they were all but eliminating the danger.

But the reality was that slicing risk up and spreading it around only leaves more investors exposed – especially when that risk becomes largely invisible to the people holding it, as it was in these remarkably opaque products.

“I think the biggest thing that people underestimated was the quality, or lack thereof, of the paper that was at the foundation of this mountain,” said Jim Leech, the former CEO of the Ontario Teachers’ Pension Plan, who had just been named to the position when the events of a decade ago took place. “You had this whole leveraged system built upon something that wasn’t very stable to begin with.”

“The credit debacle exposed in 2007 that slicing and dicing securities does not erase the risk of unforeseen illiquidity in dark corners. The relevance today is not in the now hackneyed suggestion that bank capital is stronger and regulators more aware,” said veteran independent market strategist Subodh Kumar in a note this week to clients. “Frictionless continuity should not be assumed.”

We’ve learned that rising interest rates can have unanticipated consequences in unstable asset markets. Many observers trade the trigger for the crisis – the collapse of the U.S. housing market – to the U.S. Federal Reserve’s steady ramping up of interest rates in the two years prior to the housing downturn. That forced the issue in a housing market greatly over-extended and heavily financed by debt, both at the consumer level and the bank level. It’s something central banks around the world must be conscious of as they move to normalize interest rates from their extreme lows over the next few years – not least in Canada, with its own housing-market concerns.

We’ve learned that an economic recovery from a financial crisis is much harder, and takes much longer, than a recovery from a garden-variety recession. The financial crisis and Great Recession had at their root a complicating factor: Extreme excesses in debt, on all levels. We’ve seen that this sort of “balance sheet recession,” as economists call it, require a slow and painful process of debt reduction by households, businesses, financial entities and even governments before the underlying cause is resolved – and this process itself restrains demand and impedes recovery.

And we’ve learned that that market participants have a long memory when they’ve been burned as badly as they were in the financial crisis. A decade removed from the beginning of the financial crisis, eight years since the recovery from the Great Recession began, confidence remains a fickle commodity. Barely a week goes by without something landing business reporters’ in-boxes musing about the “next financial crisis” – when it might happen, what it might look like, what will bring the markets to their knees next time. Prior to the 2007-08 meltdown, talk of crises were largely lessons of long-ago history; today, they are a regular part of the discussion.

And while asset prices suggest that investors have been more than happy to pile on the risk again as the crisis has moved further into the rear-view mirror, there is still lingering evidence of a more risk-averse approach to navigating finances in the post-crisis business world. Global business capital investment has barely recovered to its precrisis levels, and it’s not because businesses don’t have the money to invest: Moody’s Investors Service this week published a report showing that U.S. corporate cash holdings topped $1.8-trillion at the end of 2016, about two and a half times their 2007 levels.

Despite growing economies and years of under-investment by the corporate sector, businesses have shown a propensity to horde cash for another financial rainy day – the lesson seared in from the financial-crisis carnage.

But perhaps the biggest lesson we have learned from the financial crisis that began a decade ago is how little we really understood about the inner machinations and complex interactions of our financial system – and, frankly, how little we still understand. Many key market participants knew shockingly little about the true nature of the creations introduced to the financial system in the years preceding the financial crisis, and completely misread how they would unravel under pressure.

By that same token, the financial system 10 years on has its own unknowns – from investors’ elevated exposure to risk assets, to Canadians’ record household debts, to the massive crisis-era expansion of central bank balance sheets in the United States, Europe, Japan and China. And the regulatory safeguards put in place after the financial crisis to deliver stability to the financial system in times of shock have yet to face a true test.

“Will there be another crisis? The answer is yes. The basis of the economy, the basis of financial markets, is human nature, and we’re far from perfection,” said Mr. Vachon.

“More fundamentally, the real issue – and I think the work that has been put in place by regulators and the banking industry – is not so much to avoid another crisis but to make sure it doesn’t have the same macro-economic, social and political impact.”

I am overdue with an apology to the police. In the past I have directed criticism at them over unprosecuted financial crime. I now realize that they themselves are victims of budget shortfalls, and indirectly, of the very financial crime and abuse that I study.

For example, a report by the Small Investor Protection Association, http://www.sipa.ca, titled “Advisor Title Trickery,” shows that more than 27,000 persons in Alberta are licensed in a “salesperson” category of registration, while they advertise something entirely different to investors.

This matters because the retirement security of Canadians can be shortchanged by 50 per cent or 60 per cent, by tiny fees, commissions and costs that salespersons (a.k.a. advisors) apply, while licensed fiduciary “advisers” (spelled “adviser”) cannot legally act against an investor’s interests.

In 2008 the City of Lethbridge lost about $30 million tax dollars, taking advice from a person licensed as a salesperson. A Lethbridge Herald article Jan. 13, 2009 said these losses would be converted to longer-term notes which mature in 2016. I do not believe this return of money has occurred.

With budgets impacted by loss, police are less able to stop the deceptions that shortchange their own budgets, nor the losses of millions of Canadian investors who are similarly deceived by salespersons on commission.

All “other” crime in Canada totals approximately $50 billion, according to Stats Canada and Justice Canada, while single systemic financial crimes can approach this number.

In Lethbridge’s example, the sale of sub-prime investments (without legally required ratings) lost $35 billion for society, including the millions lost to the city. The Public Service Pension Plan lost $2 billion. This is the plan for retired judges and RCMP officers. Imagine if a judge had personally invested in these products, they could have lost money three times – once in their city taxes lost, second in their pension plan losses, and third with their own investment. Zero criminal charges.

This takes us back to police in Canada; with nearly zero in funds to pursue systemic white-collar crime, they must also handle the additional street crimes, caused by our “risk-free” white-collar crime.

I began with an apology to the police for my critique of them, and I repeat my apology. All Canadians, including police and judges, are victims of systemic financial failures.

Executive Summary for Rachael Notley:The enclosed describes a hidden, systemic system of financial abuse of Albertans, BY Alberta financial systems, and professionals, with financial harm approaching 1/3 to 1/2 of the annual Alberta Healthcare budget. This financial abuse is being aided by the ASC, an Alberta government securities regulator which can be shown to be captured and complicit to the investment industry. I believe that a public inquiry under the Provincial Inquiries Act would reveal billions lost every year to Alberta residents.

June 22, 2015

To: Alberta Premier Rachael Notley,

In 2007 a U of Toronto Pension study estimated the financial harm to Canadians at $500 million EACH WEEK from financial victimization of Canadians investments. Since this time the one investment type they studied (mutual funds) has doubled in size. I hope the NDP can crack open this failure to protect citizens from self-dealing and self-regulators. The Conservatives before you did everything in their power to ensure that this was NOT brought into public view.

Examples which speak loudly on the public record, but are not well covered in the media:

---Albertans are unaware that the retirement security of savers and investors is allowed to be cut by as much as HALF, by systemic tricks and deceptions by our most trusted financial institutions.

---The laws of the Alberta Securities Act are selectively ignored by the ASC so that Albertans are not protected from predatory financial services.

It is imperative that the ASC, which is operated within Alberta Finance, be investigated and restructured with a required priority emphasis on investor protection and a lesser emphasis on investment industry protection.

---The Alberta Securities Commission hands out nearly 500 “exemptions” to Alberta’s laws yearly, without a warning to consumers, without a notice to buyers of flawed investments, and without even public input into this secretive industry-insider-dealing process?

The harm done to Albertans by letting investment products skirt our laws, is almost incalculable, but is well into the billions.

The number of deceptions played upon Albertans, municipalities, Universities, pension funds and investors is enough to make billions of profits for financial institutions, all while the ASC purports to be “protecting the public”. This protection is a facade in my opinion and in the opinion of thousands of Alberta victims.

---Between 20,000 and 30,000 Albertans have suffered TOTAL loss of their investments, and in some cases their life savings as a result of products sold under the approval of the Alberta Securities Commission, but with “exemption” from the prospectus requirements of our Securities Act? (exempt market products) This (exempt market products) is another entire realm of abusing securities laws to abuse Albertan’s.

I believe that now may be the right time to shine some sunlight into this agency, with it’s troubled history which goes back a decade or more.

I urge you to consider a public inquiry under the Public Inquiries Act of Alberta into the acts of this Commission, while the time is right, and public are open to finding out some truths. Your government would be rewarded to an immense political amount by the revelations which would come from such an inquiry.

If left alone, the financial cheating of Albertan’s will continue to grow, allowing it to become both a civil class-action liability to the Province, as well as a future liability to any government which leaves this rot in place.

I ask that a public inquiry be called, with proper regard to the 40 year influence of cronyism in Alberta, as it may affect the objectivity of many of those who profited handsomely by the rot. Please ensure that outside experts, out of province if need be, are utilized in order to leave no stone unturned. The very power brokers who allowed the public to be abused must not be allowed to adjudicate over this inquiry.

Sincerely,

Larry Elford

Lethbridge AB T1J 1N3

To be very clear about the intent of this letter, a public inquiry should be broad enough to inquire into all activities of the Alberta Securities Commission. It must be open and welcoming to investors to share their experiences with this agency, and it must be open to the public, to view what this agency has done to Alberta’s financial safety and security. It will thus reveal what most of the public does not know, which is that the government and agencies it placed so much trust in, have long been working (or ignoring its protective mandate) to allow the public to be financially abused, to the benefit of billion dollar corporations.

Below copied from Ontario Government Legislative hearings into public agencies, specifically the Ontario Securities Commission, and it's role in allowing the sale of ABCP (sub prime investments) to the public prior to the collapse of 2008. This is included by way of one example applicable to the ASC actions (or inactions) that harmed thousands.

greatest story never told: Updated 2013 After seeing how well the CSA is doing to "protect the public" 800 words

-HOW TO STEAL BILLIONS OF DOLLARS IN CANADA, -GET HELP FROM 13 SECURITIES COMMISSIONS, -LIFT $2 BILLION FROM THE PUBLIC SERVICE PENSION PLAN OF CANADA (Retired RCMP and Judges pensions) -HAVE A JUDGE GRANT YOU IMMUNITY FROM CIVIL PROSECUTION -HAVE THE RCMP CLOSE THE FILE WITH THE ADVICE AND HELP FROM A SALARIED SECURITIES COMMISSION MAN..(WINK).........THIS IS FREE MONEY!

begins with this self congratulatory paragraph in the 2009 Canadian Securities Administrators “enforcement” report:

So now you have the story..........but this is only the story that 13 securities commissions across Canada want you to know.

Keep reading if you would like to see which parts of the story that the CSA forgot to mention:

In 2006 and years just before, many financial institutions needing to dump toxic sub prime mortgage investments were barred from doing so in Canada due to rating requirements in the securities acts.

So, in typical “self” regulating fashion, (“rules? what rules? we don’t have to follow any stinking rules”) where the six figure salaries of the regulators are fully funded by 9 and 10 figure financial firms, an “exemption” application is filed so that this pesky law does not have to be followed.

Securities commissions accept the very important looking paperwork, with very important sounding words from important lawyers........as well as the......ah......fees.

With “no provisions in the Act to inform the public”, of course all of this has to be done out of sight.............

$35 billion of toxic investment products are dumped on unsuspecting Canadians, municipalities, universities, judges and RCMP pension plans etc., etc. A suicide or two results when this money fails to be returned to its owners.

Securities commissions, (who let the toxins into Canada) lay low for a year or two, until the heat dies down before getting involved. The former vice chair of the OSC who signed some of the actual permissions letting our laws be violated, says “we had no clue”, which is perhaps the most honest evaluation.

After the dust settles, and immunity from civil suit is sought (first order of business) for those involved.......and a judge, not knowing that his own Public Service Pension Plan of Canada was cheated out of $2 billion dollars......signs the immunity order. Hmmm. These fraud artists are so damn good in Canada. Charm the pants off a judge whilst lifting his wallet.

Where was I?

Oh, so immunity from civil suit, some government bailouts and some pressure from a Calgary engineer (Brian Hunter) with a Facebook group of angry victims, results in about 1800 investors (those under $1 million) demanding AND getting their money back. (second history setting “first of its kind” financial event coming out of Calgary) Not before a suicide or two, the family distress, the breakdowns. Thank you securities commissions for “protecting" us.

Approximately two years later, the securities commissions (who have laid low due to their involvement in selling out the public protections and allowing the toxins) decide to now act like they are doing their job. They line up some “offenders” and dispense their “punishment”. Fines of about one half a penny for every dollar cheated from the public are levied against the offenders.......one half a penny per dollar. This is a very profitable business.

Then they (Canadian Securities Administrators) put that in their annual report on enforcement to show the world how well they are “protecting Canadians” from financial crime. (see firms image above) Wow, these guys are almost as good as the fraud artists themselves.........

What they fail to mention of course, is their own culpability in aiding the entire scam to happen, for some money in fees, to pay off a few lawyers salaries. I guess this had to be edited out for space in the enforcement report............

They also forgot to mention about allegations of criminal breach of the public trust that were levied against them with the RCMP IMET. That was an experience.

When the RCMP were forced, kicking and screaming like a child leaving Chucky Cheese, to look at allegations that the Securities Commissions breached the public trust in selling out (“exempting” is the more polite term they prefer) the Securities Act in your province, you will never guess who the RCMP turned to for help investigate the securities commissions. To work alongside RCMP in their investigation of the securities commission breach of trust allegation. Of course, none other than an Ontario Securities Commission man named Mike Watson. An OSC person in the upper salary ranges, who sits on a joint management committee with the RCMP to “co-operate” and counsel the RCMP on economic crimes. Hmmmm. Starting to figure this out yet?

Did I mention that these financial crime guys in Canada were good? By that I mean they have every base, every street corner, every angle covered so well.

If you want to pick the pockets of Canadians, I think this is probably the best way to do it. The exemption list at my securities commission is about 25 pages long, single spaced, of names of financial folks who are funding your securities “protection” officials. Good luck retiring. With government officials like this, you probably don’t need to worry about retirement at all.........

References:

RCMP IMET report, exemptive relief applications, securities commission approval reasons: “each of the decision makers is satisfied that the test contained in the legislation for the decision makers to make the decisions has been met”.Story of ABCP toxic sub prime mortgage investments detailsTestimony and submission to Ottawa standing committee (very productive)Contacts, victims, news media coverageAll found on the public record, and some published at http://www.investoradvocates.ca in and among the 42 topics found there on securities industry misconduct and professional malpractice. Also visit http://www.investorvoice.ca for a look even further back into the history of lying to, and cheating Canadians out of their hard earned money, by trusted professionals and public servants. There are some nasty folks offering to serve you "professionally" here. The good news is that when you learn of their tricks, you can get every dime they helped you lose back, and some justice in the process.

The Chair: Thank you very much. Folks, you've heard the bells start ringing. We're going to suspend until after the vote, unless there is consent to go another 15 minutes. Some hon. members: Agreed. The Chair: All right, we'll continue for another 15 minutes. Next on our list is Larry Elford.

Mr. Larry Elford (As an Individual): Thank you. Ladies and gentlemen, I'm here to tell you how to commit the perfect crime, perhaps with the help of Bill C-52. Let's call it “How to Steal Billions in Six Minutes and Never Be Caught”. If I were to rob a financial institution in Canada, I am subject to the penalties of the Criminal Code; I think everybody knows that. If a financial institution, however, robs Canadians using any one of a thousand methods that I witnessed while working for financial institutions, they are not even subject to the penalties in this proposed bill, as I read it. They fall under the Securities Act. Investment crime is more likely to fall under the protection—yes, I said “protection”—of securities commissions in 13 provinces and territories than to be prosecuted. Most of the time, independent police agencies are not even involved. I worked in the financial industry for 20 years and I found it nearly impossible to hold a discussion about ethics and honest treatment of customers, so strong was the culture and addiction to sales, commissions, and bonuses. Most Canadians, however, are of a mistaken impression that our financial institutions are so trustworthy as to be above examination. I would like to challenge this dangerous conventional wisdom, and I'll go so far as to call it a form of collective insanity.

The Chair: Mr. Elford.

Mr. Larry Elford: Yes?

The Chair: I've just been advised that it's possible the vote may happen much sooner than in 30 minutes. We are going to suspend, and we'll be back as soon as we're done voting.

Mr. Larry Elford: That's no problem.

The Chair: And you can start over. The meeting is suspended. (1550)

(1645)

The Chair: I reconvene the meeting. I believe that when we left off, Mr. Elford, you had started to speak. I invite you to start from the beginning so that we have a complete picture of what you're telling us.

Mr. Larry Elford: Thank you, Mr. Chairman. I was saying that I'm here to tell you how to commit the perfect crime, possibly with the help of Bill C-52. I mentioned the Criminal Code of Canada and the fact that if I were to rob a financial institution, the Criminal Code would probably apply to me, but in a financial institution in Canada governed by the Securities Act in 13 provinces and territories, there's any one of a thousand methods that I've witnessed of robbing the savings of Canadians and Canadian taxpayers, and they're often not subject to criminal sanctions of any kind. Maybe on the fingers of my hand, I could come up with the number of criminal penalties against actual subjects in the last 10 or 20 years. Investment crime is more likely to fall under the protection of securities commissions. That word is terrible to say: that securities commissions are protecting investment crime. But that's what I saw over 20 years of working in finance. Most of the time, the independent police agencies are not involved and not even notified. I worked for 20 years in the financial industry. I found it nearly impossible to discuss ethics and honest treatment of customers. The culture of sales commissions and bonuses was far too strong. Most Canadians, however, are of a mistaken impression that our financial institutions are so trustworthy as to be above examination. I mentioned that I'd like to challenge that dangerous piece of conventional wisdom and that I'd like to go so far as to call it collective insanity. Most Canadians have also been sold a story that our Canadian financial institutions are the world's strongest. While that may in fact be true, it ignores the possibility that they may be strong because they are legally allowed to be predatory and are protected from real competition and real examination in Canada. It ignores millions of dollars that I watched being skimmed from your investment returns and your pension accounts by predatory sales practices dressed up in a disguise of “investment advice”, damage that cuts the retirement of the average Canadian investor by half. Also ignored are billions of dollars in damages every year from a system designed to place the interests of financial institutions ahead of their customers'—a system we do not speak of, but which exists in actual practice. It ignores investment frauds that are penalized by authorities in the United States, while here in Canada the same abuses are considered standard industry practice, and they continue to harm Canadians each and every day. Regulators in Canada are allowed to turn a blind eye to all of these. It ignores hundreds of billions of dollars in damages by companies like Northern Telecom, Global Crossing, Enron, Eaton's, and a thousand others that are used in some way to fatten investment bankers, lawyers, or CEOs at the expense of your financial security. Financial abuse by the institutions we trust is costing Canadians more money each year than the cost of every other crime in the country combined. I used Justice Canada's website for my figures. Yet we act like good Canadians and we praise our financial institutions for being among the strongest in the world. It's a little bit like praising the schoolyard bully for being so well fed, after he has stolen everyone's lunch. Let me reveal four simple ingredients I found in our financial system that allow billions of dollars of financial abuse to take place each and every year. The first ingredient in making financial crime pay is having the ability to self-regulate, to have our own in-house policing system, and to use this system to often bypass real criminal investigation and prosecution. Part of this includes securities commissions, and 13 of them across the country act more and more like the corrupt sheriff in every Smokey and the Bandit movie I've every seen. They seem to feel that they too are above examination. The second ingredient is that the financial industry, rather than the taxpayer, pays the salaries of these regulatory agencies. That means that clever financiers get to choose who to hire to regulate financiers. Imagine if you were a criminal mind and you had the ability to choose who you wanted to police yourself. The third ingredient in making financial crime pay is to pay them about triple what they would earn in the same job elsewhere. The salary of the head of the Securities and Exchange Commission in the United States is capped at $162,900 per year. The 13 securities commission heads in Canada are paid as much as four times this amount, each one of them. I'm told there were once 90 staff members at the Ontario commission alone who were each paid more than the top man in the United States. (1650)

Overpaying our regulators makes them highly compliant, conflicted, and more willing to say yes to the financial industry. The Canadian public, on the other hand, does not pay their salaries, and members of the public are not usually even allowed in the front door of any securities commission in Canada. Instead, they are sent to non-government industry groups where they are spun around by an industry-run kangaroo court process. The public will not be helped but simply abused a second time. Please don't take my word on this; ask any abused investor. If you were shopping for a list of ingredients required to make financial crime pay, last but not least is the ability to buy permission to violate the laws of Canada. In fact, 13 securities commissions, acting in concert, will allow any financial institution in the country to violate our laws simply by filing an application to do so. I have in my hand a list of several thousand such legal permissions that have been granted without informing the public of a single, solitary one. This is the greatest gift you could possibly ask for as a criminally minded financier: to be able to break any law you wished in this country in pursuit of profits. Finally, we come to the helpful effects of Bill C-52. I see nowhere in this bill where it applies to public market fraudsters. In fact, my reading of it shows that subsection 380(2) of the Criminal Code, relating to public market fraudsters, has been removed or is not present in this bill. That would be a fantastic gift from the writers of this bill to yet again the financial markets of Canada; we can continue to hide our crimes inside our own private regulatory system with no outside oversight or interference. Thank you for your time.

Tobacco giants to pay up to $1.15B over contraband salesA prominent anti-tobacco group says it's simultaneously pleased and disappointed by the huge fines levied against two of Canada's largest tobacco companies.

Imperial Tobacco and Rothmans Benson & Hedges admitted on Thursday their involvement in cigarette smuggling schemes during the late 1980s and early 1990s and agreed to fork over as much as $1.15 billion in fines and civil payments in connection with aiding contraband tobacco sales.

Imperial Tobacco was issued a $200-million fine and will pay up to an additional $400 million over the next 15 years, while Rothmans Benson & Hedges was fined $100 million and will pay up to $450 million more in civil payments over the next 10 years.

While the Non-Smokers' Rights Association, a non-profit health organization headquartered in Toronto, is pleased with the fines, the anti-tobacco group is disappointed no charges will be laid against company executives.

"If you or I had any intention of defrauding the government of a couple of million dollars, we'd be thrown in jail," said François Damphousse, the organization's Quebec director.

"Why aren't the executives facing such charges for having defrauded the government of billions of dollars?"

Damphousse also noted the fines don't come close to making up for what the government lost in tax revenue at the height of the smuggling operation. His group has fought hard to keep taxes on cigarettes high

Joseph Erban, who runs smoking-cessation support groups at Montreal's Jewish General Hospital, recalled that 20 years ago, massive amounts of cigarettes were being smuggled into Canada from the United States.

"Cigarettes were readily available," Erban said. "You didn't have to go very far to get an illegal carton of cigarettes for half the cost of what they would be selling at the retail level."

Expensive cigarettes deter people from smoking, Erban said. He said the cheap, black-market smokes bootlegged in from the U.S. made it difficult for many people to quit.

(same man at the "get out of jail free" side of both crimes, tobacco smuggling as well as financial ripoff of billions)

Canada's two biggest tobacco companies pleaded guilty Thursday to customs charges and agreed to pay as much as $1.15 billion in fines and civil payments in connection with aiding contraband tobacco sales.

Imperial Tobacco was issued a $200-million fine and will pay up to an additional $400 million over the next 15 years, while Rothmans Benson & Hedges was fined $100 million and will pay up to $450 million more in civil payments over the next 10 years.

The companies pleaded guilty to "aiding persons to sell and be in possession of tobacco manufactured in Canada that was not packed and was not stamped in conformity with the Excise Act."

Revenue Minister Gordon O'Connor called the fines a "clear message" to companies that the government is committed to fighting illegal tobacco in Canada.

The additional amounts the companies have agreed to pay by way of civil settlements with the federal government, Ontario and Quebec will be administered by the Canada Revenue Agency. The civil agreement also includes a commitment by the companies to combat contraband tobacco activities in Canada.

"These represent the largest criminal fines and civil settlements in Canadian history," O'Connor told reporters in Lévis, Que., after the fines were announced. "The companies have accepted their actions and have agreed to a comprehensive settlement package."

In a release, Benjamin Kemball, president and CEO of Imperial Tobacco Canada, said the company was " pleased to have resolved this issue.”

Minutes after the fines were announced, Rothmans released a statement saying it has agreed to a friendly takeover bid by U.S.-based Philip Morris International Inc. for $30 per share in cash, valuing the company at $2 billion.

'No company is above the law': RCMPThe charges stem from contraband tobacco sales between 1989 and 1994, which involved products being produced in Canada and shipped to locations in the United States to be distributed to smugglers or black market distributors, who brought it back into Canada for illegal sale, the RCMP said.

The fines and civil payments conclude more than eight years of investigation by the Mounties in Ontario and Quebec, assistant RCMP commissioner Mike Cabana said.

“The message sent today is that no company is above the law,” he said.

Cabana said the past practices do not reflect today's "huge" tobacco-smuggling business, which he said is dominated by foreign manufacturers smuggling products into Canada with the help of organized criminal groups.

(advocate comments: Fascinating to think that the head of the company (Purdy Crawford) involved in the largest crime (at that time) in Canada, is also actively involved in the next largest crime in Canada, the Asset Backed Commercial paper crisis..........I make no allegations, but leave you responsible to your own) 4 minute CBC News clip here http://www.youtube.com/watch?v=ZsvJjOCDT9s&feature=share&list=FLy8dpTRZHEz-0JBa_l0w7AQ

THANK YOU CANADIANS FOR LETTING US FINANCIAL PEOPLE POLICE OURSELVES, IT IS WORKING OUT SPLENDIDLY!!:)==========================================================================================================(a November 10th, 2011 update on the largest financial swindle in Canadian history. A swindle that took money from all Canadians, rich or poor, and all governments, municipal, provincial, federal, and all taxpayers) (advocate comments above, analysts report starts below)

The buddy system at the Ontario Securities Commission is alive and well, when you consider that the three OSC Commissioners James Turner, Mary Cordon and Paulette Kennedy reduced the enforcement staff's recommended penalty from $16.5 million to $2.0 million in yesterday's Coventree penalty decision, with the two top executive offices fined only $500,000 each, payable by Coventree. The three commissioners had found Coventree and its two top executive officers Dean Tai and Geoffrey Cornish guilty of disclosure offences under the Ontario Securities Act on September 28, 2011.Here is a breakdown of the penaltieshttp://www.osc.gov.on.ca/en/Proceedings ... entree.htm

· Coventree pay an administrative penalty of $1,000,000;· Coventree pay $250,000 of the costs incurred by the Commission in connection with the hearing of this matter;· each of Cornish and Tai are prohibited from becoming or acting as a director or officer of a reporting issuer, other than Coventree, for a period of one year;· each of Cornish and Tai shall pay an administrative penalty of $500,000;· for greater certainty, this Order is not intended to prevent Cornish or Tai making any claim for indemnity from Coventree in respect of the amounts payable by them.

The current marked to market losses on the Non Bank ABCP market are at $10 billion, four years after the financial crisis occurred. At their peak these losses were $25 billion in the Fall of 2008 after the Lehman bankruptcy in the U.S.Canadian Non Bank ABCP Marked to Market ValuationOutstanding AmountWtd. Avg. PriceMTM Valuation October 31, 2011MTM LossOctober 31, 2011MAV 1, 2 & 3 All Classes$29,417,766,387$66.23$19,482,287,148-$9,935,479,239

The Canadian investment banks quietly settled about $5.8 billion of this toxic product in their retail money market funds and brokerage accounts, but two small dealers, Canaccord and Credential Securities, refused to settle with their retail Non Bank ABCP owners. Ultimately, the two hold-out dealers settled with their 1800 retail clients for $187 million on January 19, 2009, which was the largest retail settlement in Canadian history that returned 100 cents on the dollar of damages, plus interest and legal costs. I was the financial expert and Henry Juroviesky of Juroviesky LLP represented the unsettled retail owners of Non Bank ABCP.

Getting your money back after an intense 18 month stressful fight is not justice. Wynn Miles, a retail owner of the Non Bank ABCP, wrote to the OSC on Oct. 26, 2011 in the email provided below. She says, "Mr. Cornish and Mr. Tai should have known the weaknesses of these complex investment products, and should have administered them in a more responsible manner that did not breach security regulations. It is my hope that the OSC will ensure these senior executives of Coventree are held personally responsible for their actions."

The OSC is effectively condoning the creation and distribution of toxic investment products by Canada's investment banks by imposing ridiculously low fine after a thorough hearing of the facts and a finding of serious securities offences. In fact, it was the OSC that facilitated the distribution of this toxic investment into retail accounts when it made the following regulatory changes in 2005 and 2006.

· In 2005, the $50,000 minimum sale allotment test for the commercial paper prospectus exemption was changed by the Ontario Government to a test based on getting an approved credit rating from an approved credit rating. There was no simultaneous introduction of government quality control supervision over the credit rating agencies, who were given investor protection responsibilities in the public interest.

· In 2005, the Ontario Government provided an exemption to the credit rating agencies as experts subject to civil liability for misrepresentation in information provided to the secondary market. This exemption from civil liability occurred at about the same time that the credit rating agencies were given public interest responsibility for determining the safety of commercial paper, without any government supervision.

· In 2006, the Ontario Securities Commission (OSC) gave exemptive relief to BMO, CIBC/CIBC World Markets and Toronto Dominion Bank to distribute Non Bank ABCP on the basis of just one credit rating agency meeting its minimum credit rating standard, even though the other three credit rating agencies gave ratings that were below the minimum standard in the regulations. These exemptive relief diluted the rigour of not failing any of the DBRS, Standard and Poor’s, Moody’s or Fitch minimum rating standards in the regulations. On Non Bank ABCP, DBRS was always the one credit rating agency giving top credit ratings, while Standard and Poor’s and Moody’s credit ratings failed the minimum standards for commercial paper set out in the regulations.

The OSC, AMF and IRROC collective fines and settlements from the 7 investment banks who settled and the Coventree fine is only $140 million. All of the investment banks have received immunity from lawsuits for any cause of action from the ABCP CCAA Final Plan legal release approved on January 19, 2011. If the powerful perpetrators toxic investment products do not receive financial penalties or jail sentences when found guilty of securities offences, then the next toxic investment product earning hundreds of millions of dollars of investment bank and legal fees is already under development.

U.S. District Judge Jed S. Rakoff is speaking up on November 10, 2011 about the U.S. SEC's leniency in its $285 million settlement with Citibank for its role in selling a structured credit product that was designed to fail. Citibank earned an illicit profit of $160 million, while investors lost $700 million. Wall Street Journal, Judge Unloads on Deal SEC Struck With Citi, November 10, 2011

Heidi is the proprietor of a bar in Detroit ... She realizes that virtually all of her customers are unemployed alcoholics and, as such, can no longer afford to patronize her bar. To solve this problem, she comes up with a new marketing plan that allows her customers to drink now, but pay later.

Heidi keeps track of the drinks consumed on a ledger (thereby granting the customers loans). Word gets around about Heidi's "drink now, pay later" marketing strategy and, as a result, increasing numbers of customers flood into Heidi's bar. Soon she has the largest sales volume for any bar in Detroit .

By providing her customers freedom from immediate payment demands, Heidi gets no resistance when, at regular intervals, she substantially increases her prices for wine and beer, the most consumed beverages. Consequently, Heidi's gross sales volume increases massively. A young and dynamic vice-president at the local bank recognizes that these customer debts constitute valuable future assets and increases Heidi's borrowing limit. He sees no reason for any undue concern because he has the debts of the unemployed alcoholics as collateral!

At the bank's corporate headquarters, expert traders figure a way to make huge commissions, and transform these customer loans into [flash=]DRINKBONDS[/flash]. These "securities" then are bundled and traded on international securities markets. Naive investors don't really understand that the securities being sold to them as "AAA Secured Bonds" really are debts of unemployed alcoholics.

Nevertheless, the bond prices continuously climb - and the securities soon become the hottest-selling items for some of the nation's leading brokerage houses. One day, even though the bond prices still are climbing, a risk manager at the original local bank decides that the time has come to demand payment on the debts incurred by the drinkers at Heidi's bar. He so informs Heidi. Heidi then demands payment from her alcoholic patrons. But, being unemployed alcoholics -- they cannot pay back their drinking debts.

Since Heidi cannot fulfill her loan obligations she is forced into bankruptcy. The bar closes and Heidi's 11 employees lose their jobs. Overnight, DRINKBOND prices drop by 90%. The collapsed bond asset value destroys the bank's liquidity and prevents it from issuing new loans, thus freezing credit and economic activity in the community. The suppliers of Heidi's bar had granted her generous payment extensions and had invested their firms' pension funds in the BOND securities. They find they are now faced with having to write off her bad debt and with losing over 90% of the presumed value of the bonds. Her wine supplier also claims bankruptcy, closing the doors on a family business that had endured for three generations, her beer supplier is taken over by a competitor, who immediately closes the local plant and lays off 150 workers.

Fortunately though, the bank, the brokerage houses and their respective executives are saved and bailed out by a multibillion dollar no-strings attached cash infusion from the government. The funds required for this bailout are obtained by new taxes levied on employed, middle-class, nondrinkers who have never been in Heidi's bar. Apply this model to an entire world or an entire continent of bars and you have the equivalent of our sub prime mortgage crisis of late. Now I understand

click to enlarge (Image from Ontario Legislature investigation into Securities Commission in 2010 or 2011 I believe)Oct 15, 2011

To: Ron Liepert, Alberta Finance Minister

Dear Mr. Liepert,

Further to unanswered questions by Alberta Finance by your predecessors, I wish to ask the following, and request a clear and succinct reply to six direct questions below. It is a matter of urgent public interest to Albertans. (background at http://www.albertafraud.com )

More than a billion dollars of substandard investments have been sold in Alberta, with the permission of the Alberta Securities Commission. (ASC). In Canada $32 billion has gone missing with bad commercial paper (ABCP).

The cost of every other crime in the country is approx $40 bil according to Justice Canada, so we have that one financial crime equalling nearly every other crime in Canada combined.

Several thousand legal exemptions of all kinds, have allowed substandard investments and advice to be provided to Albertan’s, without any notice being sent to the investors. To consumers.

Six questions went unanswered by Iris Evans despite eight requests and Ted Morton three requests.

3. -What public interest is served by allowing financial laws to be violated?

4. -Why are laws allowed to be broken without public input and public notice? In secret.

5.-Why is Alberta Finance suppressing this information, rather than protecting the public interest? 6.-Where is evidence of the public interest obligation of the Securities Commission?

Here is the only answer received to date from the Alberta Finance:

“In this particular situation (ABCP) it appears the commissions carefully considered the situation and acted properly in granting the exemptions.”

Here is the official reason given by the ASC for most legal exemptions:

“Each of the Decision Makers is satisfied that the test contained in the Legislation that provides the Decision Maker with the jurisdiction to make the decision has been met.”

These answers are non answers and they are an insult to the public. There appears to be a damaging incestuous relationship between the financial services industry and our government securities regulator. Our Minister of Finance should be moving forcefully towards honest accountability. Anything less may constitute a breach of trust. Anything else leads one to assume a corrupt relationship between the ASC and industry.

These matters have caused billions of dollars to be siphoned out of our economy assisted by 13 securities commissions. Will you Mr. Liepert please take steps to answer these questions for the benefit of all Albertan’s?

A panel of the Ontario Securities Commission found that Coventree Inc. and two of its senior executives breached securities laws by misleading investors in 2007 about underlying weaknesses in the asset-backed commercial paper (ABCP) market.

Coventree was a publicly traded Toronto investment bank company that designed many of the complex structures which issued ABCP, short-term notes that were backed by mortgages and other assets. The two senior executives cited by the OSC are Geoffrey Cornish, a founder and president from 2006 to 2007, and Dean Tai, founder and chief executive officer from 2006 to 2007.

The OSC issued a 153-page decision on Wednesday, which followed weeks of hearings late last year. The decision detailed extensive private communications between senior executives and other ABCP players about the increasingly frail market for ABCP. Concerns about toxic subprime mortgages in the U.S. had infected the market in the summer of 2007 and a number of big ABCP investors were balking at buying the notes.

In August, 2007, the market for non-bank issued ABCP froze and thousands of Canadian investors were left holding $32-billion of notes that could no longer be traded or redeemed.

“It is clear to us having considered and reviewed the extensive evidence submitted to us over 45 hearing days, that Coventree and a number of the dealers distributing Coventree-sponsored ABCP from Aug. 1, 2007, to Aug. 13, 2007, had knowledge of liquidity-related events and developments in the ABCP market that were important to investors considering the purchase of ABCP. It is unlikely that any investor would have purchased Coventree-sponsored ABCP, or any other ABCP, if they had been aware of those market events and developments,” the OSC said in its decision.

The OSC's decision included pages of private e-mails between Coventree executives and board members that show the company had learned as early as Aug. 2 that skittish investors were balking at buying ABCP.

Internal documents portray an increasingly distressed executive team that was worried behind the scenes, but in public pursued a strategy of calming clients. Mr. Tai was so relieved that the notes were still trading on Aug. 3 that he told Coventree directors in an e-mail that “we managed to roll our paper today.”

Ten days later, investor fears brought the ABCP market to a halt. A national committee of bankers and investors spent the next two years restructuring the tainted notes. Although most individual investors recovered their investments, many pension funds and other big investors were forced to absorb hundreds of millions of dollars in writedowns on the notes.

Coventree is in the process of winding down its business. The company reported a loss of $4-million in June and shareholders agreed that month to dissolve the company. The decision was stayed until the OSC released its decision.

An Ontario Superior Court Judge has ruled that Britain’s Barclays Bank PLC engaged in “fraudulent misrepresentation” in a tangled dispute that followed the meltdown of Canada’s asset-backed commercial paper market in 2007.

In the ruling, released last week, Mr. Justice Frank Newbould also questioned the reliability of testimony from Barclays Capital’s Canadian-born co-CEO, Jerry del Missier.

The decision declares that Barclays, one of the world’s largest and most respected banks, “breached its good faith obligations” and sent out “misleading” statements. Barclays completely rejects the findings and is mulling an appeal.

The judgment – in a fight over investments that Judge Newbould calls “byzantine” – provides a look inside the collapse of Canada’s $30-billion asset-backed commercial paper (ABCP) market, which seized up as the first signs of the global financial crisis began to set in four years ago.

Other banks in similar positions were spared the threat of litigation because they participated in the Montreal Accord negotiations that restructured the ABCP mess. The result of this trial suggests that was a wise move.

In 2009, Barclays launched a lawsuit against Devonshire Trust, which was known as a “conduit” in the ABCP market. Devonshire’s largest investor was the large public sector pension fund, the Caisse de dépôt et placement du Québec.

Devonshire, partly owned by the National Bank, had been set up in 2006 to buy income-producing assets from Barclays with money made by issuing ABCP to other investors. The assets in question were complex: two so-called “synthetic leveraged super senior credit default swap” contracts. Devonshire paid $600-million to Barclays for them.

According to the judgment, the deal took nine months to negotiate. Barclays was to pay a monthly premium to Devonshire for what was essentially “credit protection.” Devonshire agreed that if losses in portfolios of debt obligations – corporate bonds and mortgage-backed securities not owned by Barclays – reached a predetermined level, it would pay a specified amount to Barclays.

If there were no defaults in those portfolios, Barclays would have to return $600-million to Devonshire in 2016. That money, and another $100-million of Devonshire cash, is now at stake in the litigation.

In a footnote, the judge compared the credit-default-swap deal to a sports bet: “The concept is not different than one boy betting against another that the Toronto Maple Leafs will not end up worse that some agreed place in the standings … in the next NHL Season.”

Barclays had also signed on to be a “liquidity provider” for Devonshire, agreeing to provide funds to repay ABCP notes issued by Devonshire in the event of a “market disruption,” in exchange for premiums paid by Devonshire.

The precise definition of “market disruption” was a “hotly contested issue” in court, the judge writes. But there is no question that in August of 2007, most observers outside a courtroom would say the ABCP market was disrupted, as it froze completely while panic spread about defaults on U.S. subprime mortgages.

Devonshire sent the required market-disruption notices to Barclays, asking for emergency cash infusions. When they didn’t arrive, Devonshire told Barclays it was in default.

Meanwhile, meetings between the market’s big players, held in Montreal in the days after the crisis, would result in the Montreal Accord. But Barclays refused to sign on for this restructuring, and held its own talks with Devonshire investors.

By late 2008, the Caisse was the only holdout. Both sides had agreed to suspend the effects of the default notices during their negotiations.

Each day, Barclays sent an e-mail to Devonshire (which was not involved in the talks) indicating that the “standstill” agreement was still in place while negotiations with the Caisse continued. Like all the e-mails, the last one, sent Jan. 9, 2009 stated that the agreement would remain “to allow for these negotiations to continue.”

But Judge Newbould ruled that these statements were “misleading.” Despite this assurance that talks were continuing, Barclays had just issued an “ultimatum” to the Caisse – an ultimatum, the judge ruled, that Barclays knew the Caisse would never accept. Judge Newbould ruled that the evidence showed Barclays had already decided to end the talks, kill its deal with Devonshire and file a lawsuit.

While senior Barclays executives, including Mr. del Missier, testified they believed the talks with Caisse would still continue, Judge Newbould said he did not buy it.

“If Mr. del Missier held the rosy view that he testified to, of which I have considerable doubt, it appears that it would have been a misinformed view,” the judge writes.

Judge Newbould concludes that Barclays failed to “be honest and candid” with Devonshire.

“While it is not strictly necessary for the purposes of the misrepresentation claim to determine whether the misrepresentations amounted to a fraudulent misrepresentation, in my view they did,” the judge writes.

In addition to ruling in favour of Devonshire, the judge also dismissed the methodology the bank had used to argue that it had lost $1.2-billion, pegging its losses instead at just $12,000.

A spokeswoman for Barclays Capital in New York, Kerrie Cohen, said the bank did nothing wrong.

“We are disappointed in and disagree with the Court’s decision and are carefully reviewing our options with respect to an appeal,” Ms. Cohen said in an e-mail.

“We believe we acted in full accordance with our legal and commercial rights in terminating the swaps transactions, and we completely refute that we acted in bad faith or made any misrepresentations in connection with the events leading up to our termination of the swaps.”

Despite the ruling, the complex dispute is not over yet. In addition to a possible appeal by Barclays, key issues in the case were actually separated into two trials, the second of which has yet to occur.

Toronto lawyer Tom Curry of Lenczner Slaght Royce Smith Griffin LLP, who acted for the trustee of Devonshire Trust, said the trial was hard-fought.

The ruling, he said, was a reminder that banks must be upfront with clients and business partners: “It’s the way I think that all Canadians would think that the law works. And that’s why, although it’s a case surrounded by enormous complexity, at its essence it is a case about commercial behaviour.”http://www.theglobeandmail.com/report-o ... clecontent

IIROC rejects Deutsche request : “ Canada's securities market regulator has rejected a request from Deutsche Bank AG to halt proceedings in a case involving the German- based bank's sale of asset-backed commercial paper to clients in Canada. However, the Investment Industry Regulatory Organization of Canada granted a delay in the case, saying it will now begin on an undetermined date to be set as soon as possible after April 4 next year. IIROC has accused Deutsche Bank of failing to notify clients about information it had received in 2007 about growing troubles in the U.S. subprime mortgage market that would have an impact on the ABCP market. Canada's market for non-bank ABCP froze up shortly afterward. Deutsche Bank argued the case should be halted because it could not compel people to testify at an IIROC hearing who are not IIROC members but were involved in the ABCP market. In a written decision released Tuesday [ Oct. 26, 2010] , an IIROC hearing panel dismissed the request, saying a10decision should be made in the course of the hearing about whether a lack of any testimony unfairly prejudices the bank's case.” https://secure.globeadvisor.com/servlet ... RBTICKERAA TL_1 and http://docs.iiroc.ca/DisplayDocument.aspx? DocumentID=E1E788BDCAF64A2485ACDFC5BF46B841&Language=en

It is 2005. In a room somewhere in a tower in Toronto, sit the men, finance experts pondering how to profit from markets today. Where is the biggest kill?

“How about this? We create trusts, take investors money and put into the trusts telling them that they are secured investments.........”

In a game of financial “hot potato” substandard investments get artfully passed from sophisticated investors (financial dealers) down to unsophisticated buyers (retail investors). The game is to pass these investments down to the ultimate loser as fast as possible, earn your commission and move on the the next deal.

Along come sub prime mortgages, people betting against those sub prime mortgages, institutions hedging the sub prime notes they already have, people concerned about the upside or the downside of this Asset Backed Commercial Paper.

They cook up these trusts, with cute names such as “Apollo, Rocket, Opus, and Planet”, take money off ordinary Canadians, send it overseas to a German bank as collateral against the sub prime market failing. God only knows what will happen in the end, but we will have our millions in fees, so do we really care? This is dual agency (acting on both sides of the transaction, seller AND trusted advisor) in Canada. Nothing like that is allowed in real estate or other professions, but investments in Canada is still a game of self regulation, which in other words means, “anything goes”.

Step twoThe con

These trusts do not qualify to be sold under most securities law in canada, so we need to put some lipstick on the pig with two items. First we need to have a better credit rating, and second, we need to get the securities commissions to look the other way for a little while. The credit rating agencies are for sale, so that one is easy. Luckily there is a loophole in the securities regulatory system that grants the regulators the “discretion” to hold sway over the law from time to time. So this too will be a breeze. These so-called “regulators” get to “sell” permission slips to violate the securities act. This happens every day in Canada, to practically every sales organization in the country, and the beauty is that “there is no provision in the act that says we have to notify the public” when we do this. (OSC quote) What a gift!

Step threeThe insiders

We approach friends at one of 13 securities commissions.We pay their salaries so we have an easy entrance. Thank god for self regulation.

One of the gifts of self regulations is that we appoint, pay and some would say “own” the regulators of financial products in Canada. That makes it a simple matter of paperwork and an exchange of money to get these same financial regulators to approve of something called a “legal exemption”. Simply put, we apply at the easiest or closest securities commission for permission to sell these “hot potato” investments which cannot otherwise be sold. They do not meet our laws without this exemptive relief. All 13 securities commissions grant the relief, since all of them depend on the millions of dollars of revenue that we pay them for just this kind of thing. Presto! An otherwise illegal investment is turned into a legal one, and we do not even have to notify the public that we took this hidden step.

The second gift given to those who “self regulate” is a little game in Canada called ther “passport” system, whereby if one securities commission approves of a legal exemption, typically (and for money) the other twelve will go along without question. We are told that the passport system enables a smoother flow of securities rules across thirteen jurisdictions but what it does best is assist in the flow of financial abuse across those jurisdictions.

Step fourThe crimeWe dump this product immediately onto other dealers like National Bank, Cannacord capital etc, knowing that they will “dispose” of the corpse by pushing it off onto unsuspecting retail investors. City treasury’s, mom and pop investors, university’s etc. Their “retail sales force” motivated by commissions and loyalty to the company, get into high gear, get on the phone and start calling the suckers, er customers that they hope to unload this product on. It must be noted and applauded that in Canada TD Bank was one of the only financial dealers who did not try to ride this gravy train. Thank you TD.

Step fiveThe lookouts

You always need to be on the lookout for the cops, even when you have “legal permission” to break the law. It just pays to cover all the bases.In that respect our highly regarded regulators and self regulators have made their way into the RCMP and onto something called “joint management committee’s” inside the commercial crime division, the IMET. (Integrated Market Enforcement Team) With our own industry people, from our own industry associations so carefully placed, and above examination, we can “help” to ensure that the right people do not get criminally investigated.

Osc, iiroc, other industry groups working inside the RCMP. Sitting on joint management committees, to “help” the RCMP.

Step sixThe cleanup man

To put additional insurance on making sure that the right people do not get charged for this perfect crime, we need a “cleanup man”. The mafia-like guy who can dispose of any traces of the crime, any bodies (figuratively speaking, this crime involved no loss of life). In the United states when the sub prime crime reared its head, there was involvement by the president, FBI, Treasury secretary, Federal reserve as well as congressional hearings and senate hearings to question the culprits. Here in Canada, all those people turned away for some reason. Also turning away were the self regulators, the securities commissions (who granted the permission to violate our laws). Perhaps they should be afraid of being investigated themselves?

No, the person chosen to clean up the mess, and try to make sure the right people do not get hurt was a private lawyer, chosen for his ability and his connections in doing this kind of thing. Previously he had involvement in tobacco smuggling operations, called the largest fraud in Canada by the RCMP) and he was able to get himself and senior exec’s free of criminal matters in this case. A fine of one billion against the company, (Imperial Tobacco) while he was the president of the parent company. So there is your experienced cleanup man.The fist thing he does is to try and negotiate immunity from civil and criminal prosecution for the “boys” in the back-room. He succeeds in getting civil immunity for the boys but criminal immunity is not allowed. Not to worry, as the odds of any police in Canada investigating this one are slim to none. Remember that we have some of “our boys” on the inside at the RCMP.

Step sevenThe penalty

One half of one cent for every dollar missing. Not bad.After the cleanup, after the damage control, after negotiations for immunity, and a great deal of government money to pay back investors, the securities commissions awake from their slumber, feel that it might be safe to poke theirs heads up, and take some perceived action. They know that 99% of Canada still does not know that they granted permission in the first place to allow this product to be sold, so they feel pretty smug in stepping up and imposing “pretend” penalties on the culprits. Little dow we know of the incestuous relationship between the culprits and the “regulators”. Susan Wolbergh Jenah was the vice chair of the OSC when she was busy signing her name to legal exemptions to allow these dubious products to be sold without meeting our laws. Then a few years later she moves to the head of the IIROC (gang of investment dealers) and lo and behold she comes out and says that the dealers did not know what they were selling?? I wonder if she had a clue when she allowed them to be sold, or if she was just happy doing what she was told in order to collect a $400,000 salary at the time. Her new salary at IIROC went to $700,000. It is amazing what you can buy with a six figure salary. Do not go to jail. Collect $32 billion.

Step eightThe profit

99.5 cents profit on every dollar taken, or if not all profit, at very least we can say that 100% of losses born by investors and the taxpayer. “Shoot, I was hoping for 99.9%”, you could almost hear the investment dealers say. “We will have to give the securities commission people a $100,000 raise in salary so they get it “right” next time”.

The fines imposed amount to a huge number in the newspapers, but in actual fact amount to less than one half of one penny for each and every dollar missing. $32 billion missing. Hundreds of millions of dollars in fees to the manufacturers, sellers, lawyers, regulators, receivers, mafia-type cleanup man, and so on. And nobody can be sued, nobody going to jail.

$32 billion is not quite equal to the cost of each and every other crime in the country, combined. Just about. Also just about the cost of running the province of Alberta every year. From one crime. One set of legal exemptions.

It is hoped that Canada gets an improved securities regulatory system soon, as it is unlikely that the country can afford to let the most cunning, clever financial people police themselves any longer on the honor system.

Step Nine.

When some of the investors who lost money make official complaint to the RCMP IMET financial police, the RCMP does a quick dismissal of the case, without interview of experts who volunteer info and expertise. Guess who helps them with the decision to dismiss and with writing the final report? An official on loan to the RCMP and on the joint management committee of the RCMP from the Ontario Securities Commission. The very same OSC that gave investment dealers permission to exempt themselves from the law. SOooooo, despite the RCMP receiving a criminal complaint that securities commissions were in breach of the public trust, for selling out the public interest protections of the law.......the RCMP allowed the organization that was involved in committing the crime, to participate in closing the file on the crime. It just does not get any more "organized" than that, and it does not get more perfect than that.

We learn during this process that the budget for the entire RCMP IMET force Canada wide, is under $20 million dollars per year, which is equal to or less than the budget for my police force in a city of 78,000 people. Do we really want to catch our most trusted criminals, or is this just a pretense?